Explorers dig deep to quell US gas decline
Upstream, June 6
By Anthony Guegel
North American natural gas demand is rising and production is wavering.
To plug this apparent gap before it yawns too wide, the US Minerals Management Service (MMS) is touting the promise of deep gas from the Gulf shallows.
These so-called deep deposits are defined as lying in depths of 15,000-feet or more, typically below matured fields along the outer continental shelf in US waters well under 200 feet deep.
The seismic says it is there, and long-standing platforms and pipelines are conveniently in place. That just leaves the drilling. If it only were that simple.
According to the MMS, around 80% of Gulf gas production comes from the shelf, beneath shallow water. Yet shallow-water gas production from the shelf has declined from 4.76 trillion cubic feet per year in 1997 to an estimated 3.36 Tcf per year in 2002, a 29% drop. Gas from the deep-water Gulf, as well as from Canada or Alaska, is not expected to make a difference until 2008 at the earliest.
With 25% of the nation's supply coming from the Gulf, the steep gas decline has set off alarm bells all the way to Washington DC -- even inside the Bush administration, says MMS Gulf of Mexico regional director Chris Oynes.
That leaves the deep shelf, upon which the MMS is pinning its hopes for a natural gas resurrection based upon the performance of several deep gas discoveries. At the top of the list is El Paso Production's deep gas champion, the South Timbalier block 204 discovery in 2000, which reached peak production of 350 million cubic feet per day last year. In 2003, operator McMoRan Exploration proudly announced two deep-gas discoveries at JB Mountain and Mound Point.
Both are located just 10 kilometres apart in only 10 feet of water off Louisiana, with JB Mountain in federal waters and Mound Point in state waters.
However, drilling deep is not always easy. McMoRan was forced to snuff out its Lighthouse Point-Deep probe in South Marsh Island block 207 when it came up dry after drilling to a measured depth of 17,874 feet.
Similarly, US independent Pioneer Natural Resources and 50:50 partner Woodside Energy USA recently failed to find hydrocarbons with the first of five planned attempts to find deep gas off Texas. To encourage operators to drill deeper, the MMS on 26 March proposed new royalty suspension incentives on existing leases if the operator drills for new prospects below a depth of 15,000 feet. The proposed relief measures could affect around 2400 existing leases in the Gulf.
Under the incentive programme, a royalty suspension would be granted on the first 15 billion cubic feet of gas produced from a well drilled and completed from 15,000 feet to less than 18,000 feet well depth. A well drilled beyond 18,000 feet would have a royalty suspension on the first 25 Bcf produced.
Additionally, the MMS is proposing a royalty suspension supplement of 5 Bcf to be applied to future production of gas or oil from any drilling depth on that lease for a dry hole drilled to 18,000 feet or greater. Two such supplements would be available per lease prior to production from a deep well.
These measures are in addition to a deep-gas royalty measure in place since 2001 for new leases.
The MMS held a 60-day comment period that closed on 27 May for feedback on the proposed relief incentives. The agency is expected to take two to three months to digest the responses and possibly alter the proposed programme before it publishes a final ruling in the Federal Register implementing the royalty relief.
"They are looking to publish the final rulemaking on royalty provisions before the end of the year," says an MMS spokeswoman.
The MMS estimates that anywhere from 5 Tcf to 20 Tcf in recoverable reserves may lie hidden below 15,000 feet in the Gulf of Mexico. The federal watchdog also says that only 5% of all wells drilled on the shelf reach that depth or beyond, which strongly suggests the vast potential has yet to be explored.
However, Oynes admits that imaging at those depths, especially below the ubiquitous salt sheets in the Gulf, remains difficult.
Never mind the trouble of imaging the structures and then tapping them. One industry analyst, Mike Rodgers of PFC Energy, says the fields may not be big enough to stall falling gas production.
In addition, drilling costs may take the biggest hit on the commerciality of discoveries, with costs running as high as $20 million a hole.
Yet the potential size of deep gas finds against a dwindling supply picture is too much to ignore for operators in the Gulf. Various independents have thrown themselves heartily into the game, like Spinnaker Exploration. Its Gulf prospect portfolio is divided roughly half-and-half between deep-water and deep shelf, and company boss Roger Jarvis believes Spinnaker is one of the two largest holders of inventory on the deep shelf.
Spinnaker has punctured the shelf with 75 wells -- "as many or more than anyone", Jarvis says. It holds 500,000 net acres in the area and has nine rigs drilling -- two of which are completing wells. "Deep shelf will dominate again our activity in 2003," Jarvis promised an audience of investors at a recent UBS Warburg-sponsored conference.
According to Jarvis, Spinnaker has identified four major deep shelf trends in the Gulf, dominated mostly by Miocene-based plays, where it will train its exploratory focus. However, making discoveries on the deep shelf has not been a cakewalk for Spinnaker.
"The deep shelf is not always just a black box, put the right technology to it and bingo -- see the hydrocarbons," he says.
"This game today in the Gulf is all about creating a better image quality," he adds.
Another independent, The Houston Exploration Company, has tasted its first shallow-water, deep-shelf gas discovery with its number-1 well on High Island block 115 off Texas. The well was drilled through 44 feet of water to 19,800 feet and tested 20 MMcfd.
Houston Exploration is a 50% working interest partner in the discovery with operator El Paso Production as part of a joint venture agreement between the pair.
The company anticipates first production during the fourth quarter this year, pending construction of facilities.
Houston Exploration has 118 leases along the continental shelf and has budgeted for five more deep-shelf wells in 2003. West Cameron 227, the next well on the inventory, should begin drilling this July. |
